Slides FV L4 - EWMBA 201A Economic Analysis for Click Business Decisions to edit Master subtitle Cost Lecture 4 Economic Costs style of Production

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Click to edit Master subtitle style 9/16/09 EWMBA 201A Economic Analysis for August 31-September 1, 2009 Felix Várdy
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9/16/09 Overview Economic costs vs. accounting costs Opportunity costs Sunk costs Costs of Production Total costs; Average total costs Fixed costs Variable costs; average variable costs
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9/16/09 Costs: Economics vs. Accounting Purpose of Accounting: Keep track of, and account for, use of resources: “Where did the money go?” Purpose of Economics: Take optimal decisions: “What should we do?” l Affects, in some cases, what should and should not be considered a “cost.” Bottom line:
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9/16/09 Opportunity cost Value of the next best alternative foregone as the result of making a decision. When deciding on an action, payoffs must be judged against the best alternative action. Obvious when drawing full decision tree. When using “profitability criterion” to decide whether or not take a particular action, need to add opportunity cost to actual outlay in order to take correct decision.
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9/16/09 Opportunity cost examples What are the major costs associated with attending Haas for you? For daytime students? Accounting? Economic? What is the cost of using your frequent flyer miles? Accounting? Economic?
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Airline fuel hedge Some airlines buy call options on jet fuel. Now trading at $1/gallon. Airline can insure against price increase by purchasing call option allowing it to buy 500 million gallons at $1/gallon price in the future. If price
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This note was uploaded on 09/15/2009 for the course EWMBA 201A taught by Professor Wolfram during the Fall '07 term at University of California, Berkeley.

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Slides FV L4 - EWMBA 201A Economic Analysis for Click Business Decisions to edit Master subtitle Cost Lecture 4 Economic Costs style of Production

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